Tax tips, tax, it expenses, bookkeeper, ato, startups, small business,

If you are using the software or hardware for your small business, that generally speaking yes, it is a tax deduction. However depending on how much you paid, this will determine whether you can claim a tax deduction immediately or whether it must be claimed over a number of years (depreciated).

These rules apply not just to software, but to most other assets/equipment purchased for your small business.

What IT expenses are covered?

IT expenses that you incur for your small business can be claimed as a tax deduction. They can include ongoing expenses of your website in the year in which they are incurred. This may include maintenance, internet service provider fees, domain name costs and annual registration costs. Software can also include MYOB or Xero that you have purchased outright or on a subscription. If you have purchased this outwrite you may have to depreciate it. However with a subscription you can generally claim a tax deduction if you pay an annual or monthly fee. It is important to note that if software is purchased as part of a computer system then the total cost of the system would be depreciable.

What are the rules

If you have a small business entity which is an individual, partnership, trust or company with aggregated turnover of less than $2 million, than you can use the simplified depreciation rules.

This means you can:

  • Claim a software deduction immediately if it is less than $1,000
  • Pool most other depreciating assets and depreciate these at a rate of 30%
  • Depreciate most newly acquired assets at 15% in the first year, regardless of when they were acquired in that year.

It’s important to bear these rules in mind when making purchases of equipment and other assets for your small business.

This Tax Tips Tuesday is brought to you with love by Nudge Accounting. You can read other Tax Tips here.